date: 12 February 2010
embargo: 00.01hrs Monday 15 February 2010
A 0.005 per cent tax on currency exchanges and derivatives could be implemented straight away and would raise £100 billion ($150 million) a year globally towards reducing government deficits and tackling poverty, says a new report published today (Monday) by a coalition of organisations backing a financial transactions tax.
The report - Taxing Banks - is supported by the TUC, Christian Aid, Tax Justice Network, Tax Research UK and the Task Force on Financial Integrity and Economic Development. It examines how several financial transaction taxes could be implemented, at what level they could be set, how much revenue they would raise and what behavioural changes they would encourage.
Taxing Banks says that a tax on foreign currency exchanges - similar to a Tobin Tax - could easily be collected through the Continuous Linked Settlement Bank (CLSB) or the Real Time Gross Settlement (RTGS) mechanisms which are run for all major currencies by the main central banks. Setting the tax at 0.005 per cent would not cause any difficulties for the financial markets but would raise an estimated £21 billion ($33 billion) a year worldwide, according to the report.
The report argues that a 0.005 per cent global tax on derivatives trades, which are estimated to be worth $3,150 trillion a year, could also be introduced quickly and raise an estimated £76 billion ($118 billion) a year.
While the eventual aim would be for these taxes to be implemented globally, each could be implemented unilaterally by individual countries without causing any significant evasion, says the report. In response to a similar currency transactions tax proposal by Stamp Out Poverty, Avinash Persaud, President of Intelligence Capital Limited, said:
'Given the Basel Capital Adequacy Accord for internationally systemic banks, the Financial Action Task Force on money laundering and the new continuous linked, real-time settlements system for global foreign exchange, a currency transaction development levy would now be relatively easy for any country to adopt, hard for any bank to evade and possible for most countries to implement unilaterally.'
Taxing Banks also examines the worldwide extension of a 0.5 per cent tax on share transactions, which already operates in a number of countries including the UK, Hong Kong, Singapore, Ireland and India. It estimates that it could eventually raise up to £150 billion ($215 billion) a year, although the report notes that additional research is needed on the behavioural effects of a worldwide stamp duty and its impact on other taxes.
The report says that a key advantage of transaction taxes on currency exchanges and derivatives trades is that they are hard to avoid. By contrast, an insurance levy would encourage further tax avoidance because banks would move their assets and profits offshore to avoid such a charge. A levy would also create moral hazard, by generating revenue from the kind of high-risk banking activity it is designed to discourage, says the report.
The report has been submitted to the International Monetary Fund (IMF) as part of its consultation on how the financial sector could pay for the costs of government support given to the banks.
Taxing Banks follows the launch of the Robin Hood Tax campaign, around which nearly 70 domestic charities, aid agencies, unions, faith organisations and green groups - including the TUC and Christian Aid - have come together to call for a transactions tax on banks in order to tackle poverty and climate change, both here and abroad.
TUC General Secretary Brendan Barber said: 'Everybody in the world is paying the price for the global recession the banks caused - through lost jobs and homes, less money in their pockets or having less food to feed their families.
'But rather than suggest ways to address the damage they have caused, the response of most financial institutions has been to say that no transaction tax - no matter how small - could ever work.
'Our report shows that taxes on financial transactions can be implemented quickly, unilaterally and raise substantial sums without causing any difficulties to the financial markets. Several countries, including the UK, already have these taxes and there is no reason why they cannot be extended across the world.'
Paul Brannen, Head of Advocacy and Influence at Christian Aid, said: 'We support the idea of financial transactions taxes as one means of generating much-needed funds for the fight against poverty, HIV and climate change.
'Another vital reform is the introduction of country-by-country reporting, also covered in this report. It would help poor countries to collect more of the $160 billion a year that they currently lose to tax dodging by companies trading internationally.'
NOTES TO EDITORS:
- Taxing Banks is available to download at www.tuc.org.uk/extras/taxingbanks.pdf
- An exchange rate of $1.56 to the pound has been used to calculate the global tax revenue in sterling.
- The figures for the total volume of derivatives trades come from a study by International Financial Services London. It is available to download at www.ifsl.org.uk/upload/CBS_Foreign_Exchange%202009.pdf
- The comments from Avinash Persaud are from the foreword to the report Taking the next Step: Towards a Currency Transaction Development Levy by Stamp Out Poverty. The report is available to download at www.stampoutpoverty.org./download.php?id=350
- Further information on the Robin Hood Tax campaign can be found at www.robinhoodtax.org.uk
- All TUC press releases can be found at www.tuc.org.uk
- Register for the TUC's press extranet: a service exclusive to journalists wanting to access pre-embargo releases and reports from the TUC. Visit www.tuc.org.uk/pressextranet
Issued: 15 February, 2010